The English High Court has recently provided guidance on a novel but practical point, allowing a party benefiting from a costs order to recover additional sums to account for expenditure incurred as a result of exchange rate losses: Elkamet Kunststofftechnik GmbH v Saint-Gobain Glass France S.A.  EWHC 3421 (pat).
Elkamet Kunstofftechnik (Elkamet), having succeeded in proceedings in the Patents Court, was entitled to a summary assessment of its costs. As a German company, Elkamet had to exchange euros into pounds sterling to pay its solicitors’ bills – and it had suffered from the significant currency fluctuations which struck the market in the second half of 2016. As the costs order was to be made in pounds sterling, Elkamet sought an order to compensate it for losses suffered as a result of movements in the exchange rate.
Noting that there appeared to be no authority on the issue, Arnold J decided the matter on a point of principle. In particular, he found particular force in Elkamet’s argument that the point of an order for costs is to put the receiving party back into the position it would have been in had it not had to expend the costs to which the costs order related. Arnold J considered two further points in coming to his judgment: (i) the courts may make orders for damages expressed in foreign currencies (relying on the House of Lords in Miliangos v George Frank (Textiles) Ltd  AC 443); and (ii) the court has the power to award interest on costs to compensate the successful party.
Taking these principles together, he concluded that it follows as a matter of logic that the court ought to have power, if it decides to make an order in pounds sterling, to compensate for any exchange rate loss. He went on to note that if a foreign company has to exchange its local currency into pounds sterling in order to pay the costs of litigation and that party is successful in the claim, it should in principle be entitled to be compensated for additional expenditure linked to exchange rate losses in much the same way as it is entitled to be compensated by way of interest.
Arnold J was cognisant that exchange rates could also move in the favour of Elkamet by the time the costs order was paid, and took this into account when ordering an additional payment of GBP 20,000 to reflect its currency loss.
Given the impact that the recent – very significant – currency fluctuations can have on the calculation of costs, this decision will no doubt be welcomed by successful non-UK-based parties to a litigation. Indeed, non-UK-based claimants may even consider adding a claim for exchange rate losses as a head of loss in their particulars of claim. On the other hand, for parties provisioning for potential litigation costs orders being made against them, the decision raises uncertainty about the basis on which such provisioning should be conducted.
However, it must be remembered that the decision of Arnold J was made at first instance. Indeed, Coulson J recently declined to make an order to compensate a claimant for exchange rate losses, albeit in circumstances where he was presented with a more general claim on principle that, to the extent that the defendant suffered such a loss, he was entitled to be compensated. In Bruce MacInnes v Hans Thomas Gross  EWHC 127 (QB), Coulson J noted that he was “uncomfortable” with the idea that an award for costs should be treated as an order for compensation, as if it were a claim for damages. Further, he said he did not see the close analogy between ordering interest on costs and ordering exchange rate losses, noting that any potential liability to pay for currency fluctuations is uncertain and wholly outside a party’s control. He also noted that it could be said that the “generous” rate of interest on costs at 4% over base is designed to provide at least some protection to the payee against such events outside the control of the parties.
Against the background of the more recent decision from Coulson J, it remains to be seen whether arguments in favour of compensation for exchange rate losses will succeed. For a successful party to a litigation who has suffered from currency fluctuations, it is certainty an avenue worth pursuing.